Figures based on wishful thinking

A detailed analysis of the figures of the 2013 budget contradicts a statement made by Finance Minister Cristóbal Montoro, who said that 2013 “will be the last year of the recession.” Not only is it unlikely that such an optimistic prediction will come true, but it is worth pointing out that if the recession does indeed end next year, it won’t be because of the budget that has been presented to Congress. Skepticism over the figures is based on the sharp growth in public debt, which will jump from 85.3 percent of GDP in 2012 — a figure that has already been revised to its highest point — to 90.5 percent next year. This will be mainly due to the public funds that will be given to the banks, a 15-percent drop in investment for infrastructure projects, cuts in unemployment benefits, calculated at 6.3 percent, which entails less consumer spending, and more than 28 percent in cutbacks on healthcare costs.

The budget also gives off an uneasy feeling when reviewing the distribution of the public spending cuts and the outlines of projected revenue. It has been labeled as a “largely social” budget despite the cuts in unemployment benefits over a recessive period, which logically will see the unemployment rate rise above the 25-percent mark. The planned hike in pensions is incompatible, unfortunately, with the acquired commitments outlined in the Stability Plan to limit spending on unemployment benefits to 15.9 percent, because it is doubtful that the announced cutbacks in jobless benefits will grant any margin for more money to go to pensions.

As for the revenue estimates, they have been overestimated to balance the deficit. Any revenue increase through taxes that depend on economic activity, such as value-added tax (VAT) and personal income tax, is wishful thinking. It is a matter of faith to accept the budget’s projection that revenues next year will increase by more than 13 billion euros, and that total revenues will reach 124 billion. If, in addition, it is believed that the budget gap in 2012 will be 7.4 percent — up a point over forecasts — the focus will turn to the quality of the government’s economic management, and the inevitable consequences this gap will have on the markets.

Little value

The budget has become a document of little value, with well-detailed allotments that are required by law — such as interest on debt, pensions, etc. — and nearly all other breakdowns discreetly estimated so that the final tally appears balanced. Therefore, there is little guarantee that Spain will meet its stability commitments.

To suggest that next year will be the last year of the recession based on these budget details is something of a bold statement. To make this into an accurate prediction it will be necessary in the first place to assure with absolute security that the financial system will recover as soon as reforms established by the troika are in place, and secondly, to count on some sort of stimulus for new investment. The 2013 budget is startlingly lacking in the latter. In fact, it scales back citizens’ purchasing power due to cutbacks in unemployment benefits.